Skip to main content


We’d like to understand how you use our websites in order to improve them. Register your interest.

Do Wages Lead Inflation? Swiss Evidence


We construct a quarterly time series for nominal hourly wages and unit labour costs from 1975 onwards and investigate the empirical link between wages and CPI inflation in Switzerland in order to identify causality effects and assess the relevance of wages as an indicator for short-run price changes. We find evidence that prices systematically influence wages whereas the influence of wages on prices is much more sensitive to the choice of the sample period. In particular, the explanatory power of wages disappears in a low inflation environment. These findings move in the same direction as most evidence obtained with US data.


  1. Aaronson, Daniel (2001), “Price Pass-Through and the Minimum Wage”, Review of Economics and Statistics, 83 (1), pp. 158–169.

  2. Barcellan, Roberto (1994), ECOTRIM: A Program for Temporal Disaggregation of Time Series, Eurostat, Luxembourg.

  3. Bardsen, Gunnar, Oyvind Eitrheim, Eilev Jansen and Ragnar Nymoen (2005), The Econometrics of Macroeconomic Modelling, New York.

  4. Barth, James R. and James T. Bennet (1975), “Cost-push versus Demand-pull Inflation: Some Empirical Evidence”, Journal of Money, Credit and Banking, 7 (3), pp. 391–397.

  5. Blanchard, Olivier j. and Lawrence F. Katz (1999), “Wage Dynamics: Reconciling Theory and Evidence”, NBER working paper No. 6924.

  6. Brauer, Davide A. (1997), “Do Rising Labor Costs Trigger Higher Inflation?”, Current Issues, Federal Reserve Bank of New York.

  7. Brayton, Flint, John M. Roberts and John C. Williams (1999), “What’s Happened to the Phillips Curve?”, Finance and Economics Discussion Series, Federal Reserve Board, Washington.

  8. Chan-Lau, Jorge A. and Stephen Tokarick (1999), “Why Has Inflation in the United States Remained So Low? Reassessing the Importance of Labor Costs and Price of Imports”, IMF Working Paper.

  9. Chow, Gregory C. and An-Loh Lin (1971), “Best Linear Unbiased Interpolation, Distribution and Extrapolation of Time Series by Related Series”, The Review of Economics and Statistics, 53 (4), pp. 372–375.

  10. Emery, Kenneth M. and Chih-Ping Chang (1996), “Do Wages Help Predict Inflation?”, Economic Review, Federal Reserve Bank of Dallas, pp. 2–9.

  11. Eurostat (1999), Handbook on Quarterly National Accounts, Luxembourg.

  12. Gaillard, Serge (1992), „Lohn- und Preisdynamik: Eine empirische Studie für die Schweiz“, KOF/ETH Working Paper, No. 43.

  13. Ghali, Khalifa (1999), “Wage Growth and the Inflation Process: A Multivariate Cointegration Analysis”, Journal of Money, Credit and Banking, 31 (3), pp. 417–431.

  14. Gordon, Robert J. (1988), “The Role of Wages in the Inflation Process”, American Economic Review, 78 (2), pp. 276–283.

  15. Gordon, Robert J. (1985), “Understanding Inflation in the 1980s”, Brookings Papers on Economic Activity, 1, pp. 263–269.

  16. Hess, Gregory D. and Mark E. Schweitzer (2000), “Does Wage Inflation Cause Price Inflation?”, Policy Discussion Paper, Federal Reserve Bank of Cleveland, No. 1.

  17. Layard, Richard and Stephen Nickell (1986), “Unemployment in Britain”, Economica, 53, pp. 121–169.

  18. Layard, Richard, Stephen Nickell and Richard Jackman (1991), Unemployment: Macroeconomic Performance and the Labour Market, New York.

  19. Mehra, Yash (2000), “Wage-Price Dynamics: Are They Consistent with Cost Push?”, Economic Quarterly, Federal Reserve Bank of Richmond, 86, pp. 27–43.

  20. Mehra, Yash (1993), “Unit Labor Costs and the Price Level”, Economic Quarterly, Federal Reserve Bank of Richmond, 79, pp. 35–51.

  21. Mehra, Yash (1991), “Wage Growth and the Inflation Process: An Empirical Note”, American Economic Review, 81 (4), pp. 931–937.

  22. Oxley, Les and Michael McAleer, 1993, “Econometric Issues in Macroeconomic Models with Generated Regressors”, Journal of Economic Surveys, 7 (1), pp. 1–40.

Download references

Author information



Corresponding author

Correspondence to Attilio Zanetti.

Additional information

I am grateful to two anonymous referees for their stimulating suggestions. Earlier drafts of this paper took advantage of the helpful remarks of several collegues at the SNB as well as of participants in the 2006 Annual Meeting of the SSES. I also thank André Farine at the SFSO for his support in gathering the data as well as Cliona Coyne and Helen Baumer for their careful reading of the manuscript. The views expressed in this paper are those of the author and do not necessarily reflect those of the Swiss National Bank.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Zanetti, A. Do Wages Lead Inflation? Swiss Evidence. Swiss J Economics Statistics 143, 67–92 (2007).

Download citation


  • inflation
  • wages
  • unit labour costs
  • Granger causality

JEL classification

  • E31
  • J30